Demonetisation: A Year after India’s unique economic experiment

New Delhi, India (ViaNews) – During Richard Nixon’s Beijing visit in 1972, Zhou Enlai, the Chinese premier was asked about the effect of the French Revolution on South East Asia. Even though the event in mention happened nearly two centuries back, Zhou’s answer was amusing -‘it’s too early to say’. This witticism is often cited to illustrate the Eastern long view on history over the Western immediacy. And with shifting goal posts and contradicting results, Zhou’s comment is Indian Government’s favourite excuse when it comes to Demonetization. And it isn’t actually a cop-out.

On November 8, 2016, Indian Prime Minister announced the cessation of higher denomination notes – 500 and 1000 Rupees as legal tender. Explaining the abrupt decision Modi said, “The… notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.” And it has been hailed, rather controversially, as the boldest decision to curb black money in the market. The calculations were that a sizeable part of 15.44 lakh crore would remain in the hands of the holders as invalid cash, and would not get back to the banks under the fear of punitive actions. In the frenzy that followed, more than 100 people lost their lives, directly and indirectly, some collapsing on ATM queues, some committing suicide, some by being denied medical care because of invalid currencies.

India: 1000-Rupee notes.

Moreover, public complied in silent dissent for the greater good, with the belief that they are part of an exemplary economic reform. But with Reserve Bank of India, RBI, releasing a report showing that as much as 98.96% of demonetised currency was returned to Central Bank as of June 30, the gains of reforms are greatly overshadowed by the losses. And Finance Ministry was quick to change their rationale, by Departmental Minister claiming it all as part of the plan, “confiscation of money was never the objective … had expected all the SBNs [specified bank notes] to come back to the banking system to become effectively usable currency,”

Is it so? Or is it a classic act of ‘I meant that’? Or is it a failure like the critics and opposition make it to be? Or is it even a success that we are unable or too naïve to observe. It would be an injustice to not attribute the beneficial, unexpected or expected, tie-ins with this whole exercise. Arguably though, greater tax compliance has got something to relate with demonetization. But talented or well-informed personals may find a way to circumvent that. Alongside the bad loans and other issues, more than 1.5 million jobs were reported to have been lost post demonetisation. Still, Demonetisation has increased the fiscal awareness among people. More and more people have moved to a cashless economy, again the statistics are debatable here, but online and mobile transactions have gone more accessible than ever.

It is still unclear how post demonetisation money would be utilized in tackling black money, or even tax departments are equipped with resources to tackle the corruption or at least penalize it. Indeed digital payments were on the rise (including mobile wallets and mobile banking, credit/debit card transactions, and UPI, or Unified Payments Interface), with reduced cash withdrawals from ATM.

On the first anniversary even the Government, public, and the opposition are conflicted in their conclusions on demonetisation. BJP (Bharatiya Janata Party is one of the two major political parties in India) celebrated the day as ‘Anti- Black Money Day’, Congress opposition termed it a tragedy and observed it as ‘Black Day’. According to Finance and Defence Ministers, it was a watershed moment with implications on curbing terrorism and economic upheaval. And if you turn to economists, they have conflicted opinions, starting from former Prime Minister and World renowned Economist, Manmohan Singh, who called it an ‘organized loot’ to alleged reports of Richard Thaler’s half-hearted support. The public is equally confused and conflicted in their conclusions. Though no one wants to live through it again, they are mostly grey about this unfathomable policy.

Whatever be the viewpoints Analysts and Policymakers pledge by, we are forced to find solace in the witticism of Premier Zhou, ‘it is too early to tell’.

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